The Internal Revenue Service (IRS) has modified Form 990, Schedule A with regard to public support status for the type of public charity organizations known as “supporting organizations.” Schedule A’s purpose is to identify an organization’s public charity status and compute its public support if required. The revised Schedule A for 2014 specifically expands the reporting for supporting organizations with two new Parts: Part IV that must be completed by all supporting organizations and Part V that must be completed by those that are so called Type III – Non-functionally integrated supporting organizations. These new parts include different sections that are specific to each type of supporting organization. The new questions in the form seek to clarify and confirm that the supporting organization is meeting the required organizational and operational tests described below.
Affiliated tax-exempt organization groups are often structured with various components of a central overall mission delegated among the organizations in the group. One specific type of organization that may be created in conjunction with an affiliated group of tax-exempt organizations is what the IRS refers to as a "supporting organization." A supporting organization is defined under Internal Revenue Code (IRC) Section 509(a)(3) as "Organized, and at all times thereafter is operated, exclusively for the benefit of, to perform the functions of, or to carry out the purposes of one or more specified organizations…"
The supporting organization may be structured in various ways which the IRS identifies by type.
Historically, the IRS has been most concerned with Type III supporting organizations given the relatively loose affiliation permitted between the supporting organization and the organization(s) it supports. In particular, the so-called non-functionally integrated Type III organizations have raised considerable concerns and scrutiny on the part of the IRS. Not surprisingly, the new 2014 Form 990, Schedule A requires two pages of responses for all supporting organizations (Part IV) and two additional pages of responses specifically for the non-functionally integrated Type III supporting organizations (Part V). The following provides an overview of Type III supporting organizations and differentiation between the functionally integrated and non-functionally integrated varieties.
A Type III functionally integrated supporting organization must:
A Type III non-functionally integrated supporting organization must meet the notification requirement and responsiveness test noted above, but also has a different integral part test that must be met, as follows:
All non-profit organizations that are either supporting organizations or that have supporting organizations within their affiliated group should prepare now for the additional IRS Schedule A inquiries. Specifically, in preparation for completion of the 2014 Form 990, Schedule A organizations should:
Baker Tilly will be providing additional guidance as the 2014 filing season commences.
For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.
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